After Standard & Poor's reaffirmed GRU's AA bond rating last week, Nathan Skop wrote the agency with a list of points he felt its analysts overlooked.

By Chad SmithStaff writer

After Standard & Poor's reaffirmed Gainesville Regional Utilities' AA bond rating last week, Nathan Skop wrote the agency with a list of points he felt its analysts overlooked, seemingly arguing that the utility didn't deserve such high marks.

Skop, a City Commission candidate and former state utility regulator, cited his issues with GRU's 30-year deal to purchase biomass power as reasons why S&P should “consider amending” its report.

If S&P or the other two rating agencies, Moody's and Fitch, lowered the utility's rating, it would cost millions in debt service, one reason why Mayor Craig Lowe rebuked Skop by dismissing his claims and questioning why a candidate for office would push for a bond rating downgrade.

Skop, who is running against Lauren Poe in Tuesday's at-large City Commission runoff election, sent an email to an S&P analyst at about 1:30 a.m. Feb. 16 after the agency had upheld GRU's AA rating, the third-highest on a 25-tier scale.

In the email, he highlighted a number of concerns he had with the city's contract for the biomass plant, which the commission approved in 2009, like claiming the “rate impact from the biomass contract will devastate our local economy.”

He called the contract a “speculation play in a market that has fundamentally changed since contract origination.”

A GRU official said Tuesday that S&P reviewed Skop's claims and would not be changing the bond rating.

Contacted about GRU's bond rating, an S&P spokesman said the agency's policy is to not comment on individual rating cases.

Skop is a former commissioner on the Florida Public Service Commission who is backed by City Commissioner Todd Chase. Poe is a former District 2 city commissioner who has been endorsed by Lowe and five city commissioners.

On Tuesday, Skop emailed to The Sun a statement accusing GRU and the City Commission of being dishonest with S&P, which resulted in the high rating.

“GRU and GRU's Board of Directors are not telling the truth to the bond rating agencies regarding the financial risk and substantial rate impact associated with the biomass contract,” he wrote. “(Breaching) the duty of full disclosure owed to bondholders is governed by federal securities regulations. Such dishonesty invites litigation and places future bond ratings at risk.”

Skop did not provide proof of wrongdoing and had not responded by late Tuesday to requests for further comment.

GRU Chief Financial Officer Jennifer Hunt said the utility provides all of the financial information the bond rating agencies need and said the agencies are well aware of the biomass contract.

“We have shared all of that information with them, and they are comfortable with all the information that has been provided,” Hunt said. “We have full disclosure to the rating agencies. We provide everything that they need, and we do everything on a daily basis in the best interest of our customers.”

GRU has had a AA rating by S&P and another agency, Moody's, since 1987, Hunt said. A third agency, Fitch, has rated GRU AA since it started reviewing the utility last year.

Hunt said a lower bond rating could result in GRU paying millions of dollars more to pay off its debt, which sits at about $1.025 billion.

She said GRU has saved $64 million in interest rates over the last decade because of the high ratings.

“That's why our bond rating is important,” she said, adding that GRU's rating is in the top 1 percent nationally for municipal utilities.

Hunt said she spoke with S&P staff about Skop's email and went over each point with them.

“We discussed the issues at hand, and they indicated that the AA rating with a stable outlook was not going to change as a result of the correspondence,” Hunt said.

One of the issues Skop raised is the fact that the Alachua County Commission last week voted 4-0 to have staff look into whether it was legal or feasible for the county to buy power from a different utility because of the pending rate increases — determined by the county to be roughly $200,000 more annually — from the biomass deal.

The plant is expected to generate $2.4 million in property tax revenue for the county, which would cover most of the county's current energy expenses, according to GRU and county figures.

Last week, Lowe criticized county commissioners for allowing themselves “to be manipulated” by people making a political issue out of the deal, referring to Skop, and that a “competent” commission would know that Florida law prevents customers from shopping for their utility providers.

Following Skop's email, Lowe criticized the intervention on his Facebook page, writing that Skop had “advocated against the interests of the very citizens he seeks to represent.”

In an interview, Lowe said Skop was attempting to “undermine and sabotage the bond ratings of GRU and therefore cost GRU ratepayers more in terms of debt service.”

Meanwhile Skop accused the other side of playing politics.

In his statement, he wrote that Lowe and other Poe supporters “have manufactured a political issue and are taking exception to the truth being told.”

“My letter to (S&P) financial analysts addressing these valid concerns is an attempt to save the City of Gainesville and GRU from potential bondholder litigation,” he wrote. “As a former regulator of utilities, I have frequent communication with these companies. They value my opinion and trust my judgment and experience.”

While Skop asked the analyst to “consider amending your report as the credit committee deems appropriate,” he said he wasn't advocating for a lower rating.

“While I certainly wish for GRU and the City of Gainesville to maintain their current respective bond ratings, the lack of discussion in the S&P report regarding these warning signs respectfully sends the wrong signal to bondholders, GRU management, and to our elected City Commissioners,” he wrote.

Skop's opponent wasn't sure what to make of the move.

Poe said he read Skop's S&P letter and called it “baffling.”

“I find it curious that he thinks he understands how to assess the utility's strength and economic stability better than professional folks at Standard and Poor's that obviously disagreed with him, and that's evidenced by our exceptional bond rating being maintained,” Poe said.